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Family Business Succession: 15 Guidelines--Part 2

Last month we began by giving you guidelines for how successful family businesses survive and prosper in the succession process.  They included making succession a process rather than an event; ensuring that it is an option, rather than an obligation; making sure that successors have outside experience; and when possible using mentors when your children enter the family business.  This month we present the rest of our guidelines for a successful transition.
 
8.    Designate an area of responsibility

What is the next step of your plan?  Give your son or daughter his or her own area of responsibility.  It should be well defined.  It could be a certain department.  It could be handling the advertising or doing personnel.  As your child gains in experience and competency, increase the number of areas of responsibility.  By giving pieces of the business, you will be working toward a smooth succession.

The model that we encourage you to have in mind when you think about succession is the track relay race.  One runner has the baton, while the second runner is waiting to take the baton and continue the race.  Your business will pass to the next generation much more smoothly if that second generation is running at full speed right next to you.  It should be an exchange that is almost imperceptible.


9.    Develop a rationale

We’ve just described the ideal transfer.  But what if somebody breaks stride or the wind changes?  Lots of things could happen.

As a matter of fact, the transfer zone is usually a very painful period.  The parent may go through a grieving period as he or she says goodbye to the business.  The son or daughter also may experience pain.

Maybe there is a disagreement over money.  Maybe it is over power.  Maybe the founder is not entirely convinced that the successor is ready.  How do you make it through this period?

The founder and the successor can both benefit from forming a rationale or a statement that says why all this is worth it to you.  When things are particularly painful and you are wondering why you are going through this, you can tell yourself, “It’s difficult now, but it’s worth it because….”  For example, after thinking things through, you may conclude, “It’s worth it because we employ a lot of people, and I’m proud to be part of this business.”  Sorting out your feelings will help you through this difficult time.
 
10.    Recognize that you are not alone

We have found that it often helps families to know that they are not alone.  All families face the same difficult issues such as “How should we value the business?” and “Should the founder keep a title like chairman of the board?”  Somehow, it helps to know that these issues are difficult for everyone who tries to settle them.

It also can help to know that the way in which family members respond to the issues is fairly predictable.  In many cases, mothers are over-protective and fathers think they are invincible.  Rather than blaming your oldest son for being too hard-driving and too achievement-oriented, consider the fact that first-born children are like that.  Rather than blaming your youngest child for not taking the business seriously, consider the fact that the baby of the family almost never takes anything too seriously.

Rather than thinking that your family members have “personality problems,” recognize that it is very natural for the people involved to feel the way they do.

Because conflicts are universal, you can learn from other people who have gone through them.  That’s why we generally recommend joining family-business forums or support groups.  Not only will you be able to see how other people resolve their problems, you also will see that you may not be as bad off as you previously had thought.  There is almost always someone who is in a worse situation.


11.    Have family meetings

Of course, good communication within your own family is essential.  Sometimes productive communication occurs spontaneously, and sometimes you need to plan for it.

At a family meeting, the whole family gets together to discuss an important matter.  Sometimes it is best to meet at an outside neutral location, like a resort or a restaurant; sometimes it is best to sit around the kitchen table.

How do you begin?  You may wish to start by selecting a topic and moderator.  We usually recommend, however, that you keep things informal and relaxed so that everyone can participate comfortably.

The benefits of these meetings typically include a greater feeling of unity (or team building), a clearer understanding of the issues, and a better understanding of the family’s range of perspectives.


12.    Plan, plan, plan

Long before succession is to take place, we encourage the founder to write a business plan, an estate plan and a succession plan all at once. We know that we’re asking for the near-impossible, but we do it anyway because it works.  You need to write these plans at the same time because they influence each other.

This is not, however, a do-it-yourself project.  Help from your accountant, your attorney and someone who has knowledge of organizational development is critical.  Your job is to bring these experts together and develop the plans that can guide you through the succession period.

We’re not going to tell you that it will be easy.  We’re not going to tell you that you will be able to do it quickly.  But the long-range benefits of this approach cannot be overstated.


13.    Create an advisory board

We recommend advisory boards to all small businesses.  Why?  It is an extremely valuable sustaining resource.  The board should include the type of people mentioned above (lawyer, accountant, and organizational specialist) and at least one other person from your industry with whom you share respect.  Often, the business owner will offer the board members an honorarium instead of a salary.  If liability issues are a concern, you can call the board a “council.”  In any case, you will benefit from group discussions of important issues.


14.    Set a date

As you go through the planning process you will be able to determine a realistic and financially advisable termination date.  When your plans are complete, you should know exactly when the leadership evolution process will be complete and when you will be ready to hand your business over to the next generation.  It is essential that you are fully committed to that date, that your staff is aware of the plan, and that your successor can depend on you to follow through with it.

We have emphasized many times that succession is a process.  Choosing a retirement date, preparing your successor, preparing your business for transition and preparing yourself for a different sort of life are all important components of that process.


15.    Let go

Why do so many founders at the end of the transition process say, “Well, I was wrong.  We are not going to be able to complete the transition this year after all”?  Or, even worse, why do so many decide that they want to come back to the business two or three years after they thought they had left if for good?

It is hard to let go of responsibility.  It is hard to let go of authority.  But it is even harder to let go of control. A psychiatrist can give you a lot of explanations about why this is true.  Letting go is a very complex and difficult process that should not be underestimated.  We’re sure you know many business founders who are in their sixties who do not want to leave the business because they are afraid of giving up their identity, and they don’t know what they’re going to do with their time, and they know three people who died the day after they retired.

But we would like to offer an additional explanation for why letting go can be difficult for entrepreneurs.  If you are tied financially to the business, it will be almost impossible for you to let go of it.

One of the central goals that you should have while writing your business plan, estate plan and succession plan is to create financial security that has no ties to the business.  You need to be financially independent.  If you aren’t, you won’t be able to resist the temptation to interfere with the business.


Conclusion

Perpetuating a family business is the ultimate management challenge.  We’re convinced, however, that you can increase your chances for success if you believe that succession is a process that may take 15 or 20 years to complete.  Fortunately, there has recently been a sharp increase in the number of resources (books, journals, support groups and conferences) that have been developed to help you.  We hope that you will take advantage of the support, plan ahead, be candid with your family and staff, and successfully transfer your business to the next generation.  Good luck!
 

 

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